The Global Economy Essay Example | Topics and Well Written Essays - 1250 words

The Global Economy - Essay Example According to McTaggart aggregate supply is defined as the total supply of goods and services by a national economy in a certain figure of the time. On the other hand, aggregate demand is the total demand of national economy for a certain period of time. Basic Economics suggests that the increase in price will directly affect supply and adversely affect demand. Thus, in the AD and AS diagram, AD follows a negative scope and AS illustrates a positive slope. All economic activities affect both AS and AD. This reality is important to understand before appraising the effects of all economic circumstances in other aspects. For the government, having low unemployment rate is a primary goal. Definitely, it is important for all individuals to have quality employment and for those not in the labor force to have ample opportunities to be employed. As the unemployment decreases, it is expected that most households have income. This results to higher demands and will eventually increase AD. The increase in AD generally improves the Gross Domestic Product since household consumption will also increase. Also, the income of the government is boosted because taxes in income will increase in the same manner as the taxes imposed on goods and services. In contrast, it has been noted that the decrease in the unemployment rate will have an effect on inflation. Inflation is defined as the increase in general prices as measured with the baseline of purchasing power. Usually, inflation is caused by the supply of money and the demand power of consumers.